Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Report. In addition to historical information, this discussion includes forward-looking information that involves risks and assumptions based upon management's current expectations. Our actual results could differ materially from the results referred to in any forward-looking statement. See "Cautionary Note Regarding Forward-Looking Statements" included elsewhere in this Report.

Executive Overview

We are a global data engineering company. We operate in three reporting segments: Digital Data Solutions (DDS), Synodex and Agility.

The following table sets forth certain financial data for the years ended December 31, 2025 and 2024:

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For a summary of our Significant Accounting Estimates and Policies, please refer to Note 1 of the Notes to our Consolidated Financial Statements, which are included elsewhere in this Report.

Non-GAAP Financial Measures

In addition to the financial information prepared in conformity with U.S. GAAP ("GAAP"), we provide certain non-GAAP financial information. We believe that these non-GAAP financial measures assist investors in making comparisons of period-to-period operating results. In some respects, management believes non-GAAP financial measures are more indicative of our ongoing core operating performance than their GAAP equivalents by making adjustments that management believes are reflective of the ongoing performance of the business.

We believe that the presentation of this non-GAAP financial information provides investors a more complete understanding of our financial performance, competitive position, and prospects for the future, particularly by providing the same information that management and our Board of Directors use to evaluate our performance and manage the business. However, the non-GAAP financial measures presented in this Annual Report on Form 10-K have certain limitations in that they do not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. Therefore, investors should consider non-GAAP financial measures in addition to, and not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Further, the non-GAAP financial measures that we present may differ from similar non-GAAP financial measures used by other companies.

Adjusted Gross Profit and Adjusted Gross Margin

We define Adjusted Gross Profit as revenues less direct operating costs attributable to Innodata Inc. and its subsidiaries in accordance with GAAP, plus depreciation and amortization of intangible assets, stock-based compensation, non-recurring severance and other one-time costs.

We define Adjusted Gross Margin by dividing Adjusted Gross Profit over total GAAP revenues.

We use Adjusted Gross Profit and Adjusted Gross Margin to evaluate results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

The following table contains a reconciliation of Gross Profit and Gross Margin in accordance with the GAAP attributable to Innodata Inc. and its subsidiaries to Adjusted Gross Profit and Adjusted Gross Margin for the years ended December 31, 2025 and 2024 (in thousands).

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Adjusted EBITDA

We define Adjusted EBITDA as net income (loss) attributable to Innodata Inc. and its subsidiaries in accordance with GAAP before interest expense, income taxes, depreciation and amortization of intangible assets (which derives EBITDA), plus additional adjustments for loss on impairment of intangible assets and goodwill, stock-based compensation, income (loss) attributable to non-controlling interests, non-recurring severance, and other one-time costs. We use Adjusted EBITDA to evaluate core results of operations and trends between fiscal periods and believe that these measures are important components of our internal performance measurement process.

The following table contains a reconciliation of GAAP net income (loss) attributable to Innodata Inc. and its subsidiaries to Adjusted EBITDA for the years ended December 31, 2025 and 2024 (in thousands).

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Results of Operations

Amounts in the MD&A below are after elimination of any inter-segment profit and have been rounded. All percentages have been calculated using rounded amounts.

Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024

Revenues

Total revenues were $251.7 million and $170.5 million for the years ended December 31, 2025 and 2024, respectively, an increase of $81.2 million or approximately 48%.

Revenues from the DDS segment were $220.9 million and $141.1 million for the years ended December 31, 2025 and 2024, respectively, an increase of $79.8 million or approximately 57%. Revenues increased primarily due to higher volume of our data engineering and AI systems services.

Revenues from the Synodex segment were $7.3 million and $7.9 million for the years ended December 31, 2025 and 2024, respectively, a decrease of $0.6 million or approximately 8%. The decrease was primarily attributable to termination of a customer contract.

Revenues from the Agility segment were $23.5 million and $21.5 million for the years ended December 31, 2025 and 2024, respectively, an increase of $2.0 million or approximately 9%. The increase was primarily attributable to higher volumes from subscriptions to our Agility AI-enabled industry platform.

One customer in the DDS segment generated approximately 58% and 48% of the Company's total revenues in the years ended December 31, 2025 and 2024, respectively. No other customer accounted for 10% or more of total revenues during these periods. Further, in the years ended December 31, 2025 and 2024, revenues from non-U.S. customers accounted for 16% and 21%, respectively, of the Company's revenues.

Direct Operating Costs

Direct operating costs consist of direct and indirect labor costs, occupancy costs, data center hosting fees, cloud services, content acquisition costs, depreciation and amortization, travel, telecommunications, computer services and supplies, realized (gain) loss on forward contracts, foreign currency revaluation (gain) loss, recruitment costs and other direct expenses that are incurred in providing services to our customers.

Direct operating costs were $152.2 million and $103.4 million for the years ended December 31, 2025 and 2024, respectively, an increase of $48.8 million or approximately 47%. The cost increase was primarily attributable to an expanded workforce required to support higher volumes of data engineering and AI systems services.

The increase in direct operating costs includes $42.5 million from direct and indirect labor-related costs, primarily driven by new hires, incentive compensation, and salary increases. Additional increases included cloud service subscriptions of $3.3 million, driven by increased cloud usage and data processing requirements in support of higher revenues from expanded delivery and support activities, depreciation and amortization of capitalized developed software of $1.1 million, content-related costs of $1.0 million, shipping costs of $0.6 million, travel and related costs of $0.3 million, occupancy-related costs of $0.3 million, the unfavorable impact of foreign exchange rate fluctuations of $0.3 million, and other direct operating costs of $0.3 million, offset in part by a reduction in recruitment fees of $0.9 million. Direct operating costs as a percentage of total revenues were 60% and 61% for the years ended December 31, 2025 and 2024, respectively. The decrease in direct operating costs as a percentage of total revenues was primarily attributable to higher revenues in the DDS and Agility segments, offset in part by increased direct operating costs across all segments.

Direct operating costs for the DDS segment were $135.4 million and $88.2 million for the years ended December 31, 2025 and 2024, respectively, an increase of $47.2 million or approximately 54%. The cost increase was primarily attributable to an expanded workforce required to support higher volumes of data engineering and AI systems services.

The increase in direct operating costs includes $42.6 million from direct and indirect labor-related costs, primarily driven by new hires, incentive compensation, and salary increases. Additional increases included cloud service subscriptions of $2.9 million, driven by increased cloud usage and data processing requirements in support of higher revenues from expanded delivery and support activities, depreciation and amortization of capitalized developed software of $1.0 million, shipping costs of $0.6 million, travel and related costs of $0.3 million, occupancy-related costs of $0.3 million, the unfavorable impact of foreign exchange rate fluctuations of $0.2 million, and other direct operating costs of $0.3 million, offset in part by a reduction in recruitment fees of $1.0 million. Direct operating costs for the DDS segment as a percentage of DDS segment revenues were approximately 61% and 63% for the years ended December 31, 2025 and 2024, respectively. The decrease in direct operating costs as a percentage of DDS segment revenues was primarily attributable to higher revenues, offset in part by increased direct operating costs.

Direct operating costs for the Synodex segment were approximately $6.0 million and $5.8 million for the years ended December 31, 2025 and 2024, respectively, an increase of $0.2 million or approximately 3%. The increase in direct operating costs is due to higher cloud service subscriptions of $0.2 million. Direct operating costs for the Synodex segment as a percentage of Synodex segment revenues were approximately 82% and 73% for the years ended December 31, 2025 and 2024, respectively. The increase in direct operating costs of the Synodex segment as a percentage of Synodex segment revenues was due to higher direct operating costs and lower revenues.

Direct operating costs for the Agility segment were approximately $10.8 million and $9.4 million for the years ended December 31, 2025 and 2024, respectively, an increase of $1.4 million or approximately 15%. The increase in direct operating costs was a result of higher content costs of $1.0 million, cloud service subscriptions of $0.2 million, depreciation and amortization of capitalized developed software of $0.1 million, recruitment fees of $0.1 million, and an unfavorable impact of foreign exchange rate fluctuations of $0.1 million, offset in part by lower incentives of $0.1 million. Direct operating costs for the Agility segment as a percentage of Agility segment revenues were approximately 46% and 44% for the years ended December 31, 2025 and 2024, respectively. The increase in direct operating costs of the Agility segment as a percentage of Agility segment revenues was due to higher direct operating costs offset by higher revenues.

Gross Profit and Gross Margin

Gross profit is derived from revenues less direct operating costs, while Gross margin as a percentage is derived by dividing gross profit over revenues.

Gross profit was $99.5 million and $67.1 million for the years ended December 31, 2025 and 2024, respectively. The $32.4 million increase in gross profit was primarily due to higher revenues in the DDS and Agility segments, offset in part by higher direct operating costs in all segments. Gross margin was 40% and 39% for the years ended December 31, 2025 and 2024, respectively. The increase in gross margin was primarily due to higher revenues in the DDS and Agility segments, offset in part by higher direct operating costs in all segments.

Gross profit for the DDS segment was $85.5 million and $52.9 million for the years ended December 31, 2025 and 2024, respectively. The $32.6 million increase in gross profit for the DDS segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the DDS segment was 39% and 37% for the years ended December 31, 2025 and 2024, respectively. The increase in gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs.

Gross profit for the Synodex segment was $1.3 million and $2.1 million for the years ended December 31, 2025 and 2024, respectively. The $0.8 million decrease in gross profit for the Synodex segment was primarily due to lower revenues and higher direct operating costs. Gross margin for the Synodex segment was 18% and 27% for the years ended December 31, 2025 and 2024, respectively. The decrease in gross margin for the Synodex segment as a percentage of revenues was primarily due to lower revenues and higher direct operating costs.

Gross profit for the Agility segment was $12.7 million and $12.1 million for the years ended December 31, 2025 and 2024, respectively. The $0.6 million increase in gross profit for the Agility segment was primarily due to higher revenues, offset in part by higher direct operating costs. Gross margin for the Agility segment was 54% and 56% for the years ended December 31, 2025 and 2024, respectively. The decrease in gross margin for the Agility segment as a percentage of revenues was primarily due to higher direct operating costs offset by higher revenues.

Selling and Administrative Expenses

Selling and administrative expenses consist of payroll and related costs including commissions, bonuses, and stock-based compensation; marketing, advertising, trade conferences and related expenses; new services research and related software development expenses; software and cloud service subscriptions; professional and consultant fees; provision for credit losses; and other administrative overhead expenses.

Selling and administrative expenses were approximately $59.6 million and $42.7 million for the years ended December 31, 2025 and 2024, respectively, an increase of $16.9 million or approximately 40%. The increase in selling and administrative expenses were primarily due to continued investments in growth-oriented and capability-building functions. In addition, labor costs increased as we invested in sales, account management, and marketing resources to support new customer acquisition, expand relationships with existing customers, and strengthen our market presence through solution design, go-to-market execution, and thought leadership initiatives.

The increase in selling and administrative expenses was primarily attributable to increased selling, marketing, and administrative payroll and related expenses of $13.0 million, driven by new hires, salary increases, incentives, and bonuses. Additional increases included professional and recruitment fees of $2.4 million, business software subscriptions of $0.8 million, travel and entertainment costs of $0.8 million, marketing-related expenses of $0.3 million, offset in part by a decrease in the provision for credit losses of $0.4 million. Selling and administrative expenses as a percentage of total revenues were approximately 24% and 25% for the years ended December 31, 2025 and 2024, respectively. The decrease in selling and administrative expenses as a percentage of total revenues was primarily attributable to higher revenues in the DDS and Agility segments, offset in part by increased selling and administrative expenses across all segments.

Selling and administrative expenses for the DDS segment were approximately $46.0 million and $31.6 million for the years ended December 31, 2025 and 2024 respectively, an increase of $14.4 million or 46%. The increase in selling and administrative labor costs were primarily due to continued investments in growth-oriented and capability-building functions. We expanded research and development, platform engineering, and Technology Practices teams to support ongoing product innovation, platform scalability, and the development of new AI capabilities in areas such as model evaluation, trust and safety, and enterprise deployment. In addition, labor costs increased as we invested in sales, account management, and marketing resources to support new customer acquisition, expand relationships with existing customers, and strengthen our market presence through solution design, go-to-market execution, and thought leadership initiatives. These investments are intended to support both current customer programs and anticipated future demand as AI adoption continues to mature.

The increase in selling and administrative expenses was primarily attributable to increased selling, marketing, and administrative payroll and related expenses of $10.7 million, driven by new hires, salary increases, incentives, and bonuses. Additional increases included professional and recruitment fees of $2.2 million, business software subscriptions of $0.7 million, travel and entertainment costs of $0.7 million, marketing-related expenses of $0.4 million, offset in part by a decrease in the provision for credit losses of $0.3 million. Selling and administrative expenses for the DDS segment as a percentage of DDS segment revenues were approximately 21% and 22% for the years ended December 31, 2025 and 2024, respectively. The decrease in selling and administrative expenses of the DDS segment as a percentage of DDS segment revenues was primarily attributable to higher revenues, offset in part by higher selling and administrative expenses.

Selling and administrative expenses for the Synodex segment were $0.7 million and $0.2 million for the years ended December 31, 2025 and 2024, respectively, an increase of $0.5 million or approximately 250%. The increase in selling and administrative expenses reflects, in part, a non-recurring reversal of previously accrued performance-based stock compensation of approximately $0.3 million in 2024; spend in selling and marketing related expenses in 2025 of approximately $0.2 million. Selling and administrative expenses for the Synodex segment as a percentage of Synodex segment revenues were approximately 10% and 3% for the years ended December 31, 2025 and 2024, respectively. The increase in selling and administrative expenses of the Synodex segment as a percentage of Synodex segment revenues was primarily attributable to higher selling and administrative expenses and lower revenues.

Selling and administrative expenses for the Agility segment were $12.9 million and $10.9 million for the years ended December 31, 2025 and 2024, respectively, an increase of $2.0 million or approximately 18%. The increase in selling and administrative expenses includes higher selling and administrative payroll and related expenses of $1.7 million, primarily on account of new hires and salary increases. Additional increases included professional and recruitment fees of $0.2 million, business software subscriptions of $0.1 million, travel and entertainment costs of $0.1 million, and other selling and administrative expenses of $0.1 million, offset in part by a decrease in provision for credit losses of $0.1 million and marketing-related expenses of $0.1 million. Selling and administrative expenses for the Agility segment as a percentage of Agility segment revenues were approximately 55% and 51% for the years ended December 31, 2025 and 2024, respectively. The increase in selling and administrative expenses of the Agility segment as a percentage of Agility segment revenues was primarily due to higher selling and administrative expenses, offset by higher revenues.

Goodwill Impairment

As of September 30, 2025, the Company performed its annual goodwill impairment analysis for the Agility segment. It involved a quantitative goodwill impairment test and estimated the fair value based on a combination of the income approach (estimates of future discounted cash flows) and the market approach (market multiples for similar companies) using unobservable inputs (Level 3). The income approach uses a discounted cash flow ("DCF") method that utilizes the present value of cash flows to estimate the segment's fair value. The future cash flows of the segment were projected based on the Company's estimates of future revenues, operating income, and other factors such as working capital and capital expenditures. As part of the DCF analysis, the Company projected revenue and operating profits and assumed long-term revenue growth rates in the terminal year. The market approach utilizes multiples of revenues and earnings before interest expense, taxes, depreciation, and amortization ("EBITDA") to estimate the segment's fair value. The market multiples used for the segment were based on a group of comparable companies' market multiples applied to the Company's revenue. The Company concluded that there is no impairment of goodwill.

Income Taxes

Income taxes primarily consist of provisions for U.S. federal, state income taxes and foreign income taxes recorded by the Company's subsidiaries in accordance with applicable tax laws and regulations.

We recorded a provision for income taxes of approximately $9.2 million and a benefit from income taxes of $4.2 million for the years ended December 31, 2025 and 2024, respectively.

For the year ended December 31, 2025, the Company's effective income tax rate was 22.3%, compared to the U.S. federal statutory income tax rate of 21%. The increase primarily reflects the impact of state and local income taxes, net of federal benefit, foreign income taxed at rates different from the U.S. statutory rate, and permanent differences, including non-deductible stock-based compensation resulting from the executive compensation limitations under Section 162(m). These impacts were partially offset by tax benefits associated with stock-based compensation, state tax true-ups, and other items. Additional differences resulted from cross-border tax effects, withholding taxes, deemed interest, and changes in unrecognized tax benefits.

The Company elected to prospectively adopt the guidance in ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The following table reconciles the U.S. federal statutory income tax rate of 21% to the Company's effective income tax rate for the year ended December 31, 2025 in accordance with the guidance in ASU No. 2023-09 (In thousands, except percentages):

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* State taxes in California, Florida, Minnesota, New York, Pensylvania and Texas comprise the majority (greater than 50%) of the tax effect in this category.

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The reconciliation of the U.S. statutory rate of 21% to the Company's effective tax rate for the years ended December 31, 2024 in accordance with ASC 740 Income taxes prior to the adoption of ASU No. 2023-09 is summarized as follows:

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The estimated annual effective tax rate applied to the year ended December 31, 2024 is lower than the U.S. federal statutory rate of 21% principally due to the effect of stock-based compensation and the release of the U.S. valuation allowance, offset in part by IRS section 162(m) adjustments.

The Company intends to indefinitely reinvest the foreign earnings of its foreign subsidiaries. Unremitted earnings of foreign subsidiaries amounted to approximately $58.8 million at December 31, 2025. If such earnings are repatriated in the future or are no longer deemed to be indefinitely reinvested, the Company would have to accrue the applicable amount of foreign jurisdiction withholding taxes associated with such remittances.

We have a remaining valuation allowance on all the deferred tax assets of our Canadian subsidiary in the Agility segment. This Canadian subsidiary also has research and development credits available to reduce taxable income in future years, which may be carried forward indefinitely. The potential benefits from these balances have not been recognized for financial statement purposes.

Net Income

Net income was $32.2 million and $28.7 million during the years ended December 31, 2025 and 2024, respectively. The $3.5 million increase was due to higher revenues in the DDS and Agility segments and higher interest income, offset in part by higher direct operating costs, higher selling and administrative expenses in all segments, and an increase in the income tax provision in the current fiscal year.

Net income for the DDS segment was $31.9 million and $25.4 million for the years ended December 31, 2025 and 2024, respectively. The $6.5 million increase was primarily attributable to higher revenues and higher interest income, offset in part by higher direct operating costs, higher selling and administrative expenses, and an increase in the income tax provision in the current fiscal year.

Net income for the Synodex segment was $0.6 million and $1.9 million for the years ended December 31, 2025 and 2024, respectively. The $1.3 million decrease was due to lower revenues, higher direct operating costs and higher selling and administrative expenses in the current fiscal year.

The Agility segment had a net loss of $0.3 million and net income of $1.3 million for the years ended December 31, 2025 and 2024, respectively. The $1.6 million change was due to higher selling and administrative expenses, and higher direct operating costs, offset in part by higher revenues in the current fiscal year.

Earnings per share

Basic and diluted earnings per share were $1.01 and $0.92, respectively, compared to $0.98 and $0.89, respectively, for the years ended December 31, 2025 and 2024, respectively, a per share increase of $0.03 for both basic and diluted earnings per share. Despite the prior year tax benefit related to the utilization of net operating loss carryforwards, earnings per share increased for the year due to improved profitability and operating leverage, reflecting higher revenues and cost efficiencies across the business.

Adjusted Gross Profit and Margin

Adjusted Gross Profit and Adjusted Gross Margin are non-GAAP financial measures. For a reconciliation of Adjusted Gross Profit and Adjusted Gross Margin to the most directly comparable GAAP measure, please see the description of "Non-GAAP Financial Measures - Adjusted Gross Profit and Adjusted Gross Margin" above.

Adjusted gross profit was $108.0 million and $73.1 million for the years ended December 31, 2025 and 2024, respectively. The $34.9 million increase in adjusted gross profit was primarily due to higher revenues in the DDS and Agility segments, offset in part by higher direct operating costs in all segments. Adjusted gross margin was 43% for each of the years ended December 31, 2025 and 2024.

Adjusted gross profit for the DDS segment was $90.3 million and $55.3 million for the years ended December 31, 2025 and 2024, respectively. The $35.0 million increase in adjusted gross profit for the DDS segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the DDS segment was 41% and 39% for the years ended December 31, 2025 and 2024, respectively. The increase in adjusted gross margin for the DDS segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs in the current fiscal year.

Adjusted gross profit for the Synodex segment was $1.8 million and $2.6 million for the years ended December 31, 2025 and 2024, respectively. The $0.8 million decrease in adjusted gross profit in the Synodex segment was due to lower revenues and higher direct operating costs. Adjusted gross margin for the Synodex segment was 24% and 33% for the years ended December 31, 2025 and 2024, respectively. The decrease in adjusted gross margin for the Synodex segment as a percentage of revenues was primarily due to lower revenues and higher direct operating costs.

Adjusted gross profit for the Agility segment was $15.9 million and $15.2 million for the years ended December 31, 2025 and 2024, respectively. The $0.7 million increase in adjusted gross profit for the Agility segment was due to higher revenues, offset in part by higher direct operating costs. Adjusted gross margin for the Agility segment was 68% and 71% for the years ended December 31, 2025 and 2024, respectively. The decrease in adjusted gross margin for the Agility segment as a percentage of revenues was primarily due to higher revenues, offset in part by higher direct operating costs.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, please see the description of "Non-GAAP Financial Measures - Adjusted EBITDA" above.

Adjusted EBITDA was $57.9 million and $34.6 million for the years ended December 31, 2025 and 2024, respectively. The $23.3 million increase in Adjusted EBITDA was due to higher net income, a higher income tax provision, higher stock-based compensation, and higher depreciation and amortization, offset in part by higher interest income in the current fiscal year.

Adjusted EBITDA for the DDS segment was $53.1 million and $27.8 million for the years ended December 31, 2025 and 2024, respectively. The $25.3 million increase in Adjusted EBITDA in the DDS Segment was due to higher net income, a higher income tax provision, higher stock-based compensation, and higher depreciation and amortization, offset in part by higher interest income in the current fiscal year.

Adjusted EBITDA for the Synodex segment was $1.3 million and $2.3 million for the years ended December 31, 2025 and 2024, respectively. The $1.0 million decrease in Adjusted EBITDA in the Synodex segment was due to lower net income, offset in part by higher stock-based compensation in the current fiscal year.

Adjusted EBITDA for the Agility segment was $3.5 million and $4.5 million for the years ended December 31, 2025 and 2024, respectively. The $1.0 million decrease in Adjusted EBITDA in the Agility segment was due to the net loss in the current period compared to the net income in the comparative period, higher stock-based compensation and a higher income tax provision in the current fiscal year.

Liquidity and Capital Resources

Selected measures of liquidity and capital resources, expressed in thousands, are as follows:

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At December 31, 2025, the Company had cash and cash equivalents of $82.2 million, of which $28.2 million was held by its foreign subsidiaries and $54.0 million was held in the United States.

We have used, and plan to use, our cash and cash equivalents for (i) capital investments; (ii) the expansion of our operations; (iii) technology innovation; (iv) product management and strategic marketing; (v) general corporate purposes, including working capital; and (vi) possible business acquisitions. As of December 31, 2025, we had working capital of approximately $84.9 million, as compared to working capital of approximately $41.5 million as of December 31, 2024. The increase in working capital is due to increased collections from higher revenues, offset by capital expenditures during the period to build future capacity.

We did not have any material commitments for capital expenditures as of December 31, 2025.

We believe that our existing cash and cash equivalents and cash flows from operations will provide sufficient sources of liquidity to satisfy our financial needs for at least 12 months from the date of issuance of these financial statements and thereafter for the foreseeable future.

We maintain a revolving line of credit facility. See Note 16, Line of Credit, of the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated by reference herein.

On August 8, 2024, we filed a Registration Statement on Form S-3 (Registration No. 333-281379) (the "Form S-3"), as amended on September 16, 2024, and declared effective on October 10, 2024, with the SEC, which includes a base prospectus that allows us to offer and sell, from time to time, in one or more offerings, common stock, preferred stock, debt securities, warrants or units up to an aggregate public offering price of $50.0 million. The Form S-3 is intended to preserve our flexibility to raise capital from time to time, if and when needed.

Net Cash Provided by Operating Activities

Cash provided by our operating activities for the year ended December 31, 2025 was $46.8 million resulting from our net income of $32.2 million, adjusted for non-cash expenses of $23.6 million and a decrease in working capital of $9.0 million. Refer to the Consolidated Statements of Cash Flows for further details.

Cash provided by our operating activities for the year ended December 31, 2024 was $34.9 million resulting from our net income of $28.7 million, adjusted for non-cash expenses of $5.9 million and an increase in working capital of $0.3 million. Refer to the Consolidated Statements of Cash Flows for further details.

Our days' sales outstanding were 54 days and 45 days for the years ended December 31, 2025 and 2024, respectively. We calculate DSO by first dividing the total revenues for the period by average net accounts receivable, which is the average of net accounts receivable at the beginning of the period and net accounts receivable at the end of the period, to yield an amount we refer to as the "accounts receivable turnover". Then we divide the total number of days within the period reported by the accounts receivable turnover to yield DSO expressed in number of days.

Net Cash Used in Investing Activities

Cash used in our investing activities for the year ended December 31, 2025 was $11.1 million. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software. Capital expenditures for the year ended December 31, 2025 consisted of $7.3 million for the DDS segment, $2.5 million for the Agility segment and $1.3 million for the Synodex segment.

Cash used in our investing activities for the year ended December 31, 2024 was $7.7 million. These capital expenditures were principally for the purchase of technology equipment including servers, network infrastructure and workstations, and expenditures for capitalized developed software. Capital expenditures for the year ended December 31, 2024 consisted of $4.6 million for the DDS segment, $2.1 million for the Agility segment and $1.0 million for the Synodex segment.

For calendar year 2026, we anticipate that capital expenditures for ongoing technology, equipment, new platform development, and infrastructure upgrades will approximate to $12.1 million, a portion of which we may finance.

Net Cash Provided by (used in) Financing Activities

Net Cash used in financing activities for the year ended December 31, 2025 was $0.4 million, primarily from withholding taxes on net settlement of restricted stock awards of $3.3 million and payment of long-term obligations of $0.4 million, offset in part by proceeds of stock option exercises of $3.3 million.

Cash provided by financing activities for the year ended December 31, 2024 was $6.2 million, primarily from proceeds of stock option exercises of $6.7 million, offset in part by payment of long-term obligations of $0.4 million and withholding taxes on net settlement of restricted stock awards of $0.1 million.

Inflation, Seasonality and Prevailing Economic Conditions

Although most of our revenues are denominated in U.S. dollars, a portion of our revenue is denominated in Canadian dollars, Pound Sterling and Euros. In addition, a significant portion of our expenses, primarily labor expenses in the Philippines, India, Sri Lanka, Germany, Canada and Israel, are incurred in the local currencies of the countries in which we operate. For financial reporting purposes, we translate all non-U.S. denominated transactions into U.S. dollars in accordance with U.S. GAAP. Thus, we are exposed to the risk that fluctuations in the value of these currencies relative to the U.S. dollar could have a direct impact on our revenues and our results of operations.

The Philippines and India have at times experienced high rates of inflation as well as major fluctuations in the exchange rate between the Philippine peso and the U.S. dollar and the Indian rupee and the U.S. dollar. Canada has also experienced fluctuations in the exchange rate between the Canadian dollar and U.S. dollar. As of December 31, 2025, the aggregate notional amount of our hedges was $19.7 million consisting of approximately $8.6 million against the Philippine peso and $11.1 million against the Indian rupee.

Fluctuations in exchange rates also affect the value of funds held by our foreign subsidiaries. We do not currently intend to hedge these assets.

Our most significant costs are the salaries and related benefits of our employees. We are exposed to high inflation in wage rates in some of the countries in which we operate. We generally perform work for our customers under project-specific contracts, requirements-based contracts or long-term contracts. We must adequately anticipate wage increases, particularly on our fixed-price contracts. There can be no assurance that we will be able to recover cost increases through increases in the prices that we charge for our services to our customers.

Our quarterly operating results are subject to certain fluctuations. We experience fluctuations in our revenues and earnings as we replace and begin new projects, which may have some normal start-up delays, or we may be unable to replace a project entirely. These and other factors may contribute to fluctuations in our operating results from quarter to quarter. In addition, as some of our Asian facilities are closed during holidays in the fourth quarter, we typically incur higher wages, due to overtime, that reduces our margins.

Our Synodex subsidiary experiences seasonal fluctuations in revenues. Typically, revenue is lowest in the third quarter of the calendar year and highest in the fourth quarter of the calendar year. The seasonality is directly linked to the number of life insurance applications received by the insurance companies.